determinants of demand

Determinants of Demands

Introduction to Demands

Demand is the willingness, desire, and capability to purchase a certain commodity that one needs to fulfil their desire. The determinants of demand explain the demand for a particular good or an item. The law of demand states that if the cost of a particular commodity rises, then there is a chance that the demand for that particular commodity might fall.   

The inverse relationship between the cost of a commodity and its demand is the law of demand. A line with a downward slope in a graphical representation describes the law of demand. The demand curve is the graphical representation of the demand. The demand for a commodity or service fluctuates because of the determinants.  

Individual Demand Schedule

A tabular statement presenting quantities that an individual consumer is willing to buy at various cost levels during a given period is called an individual demand schedule.   

Determinants for Individual Demands

Individual demand is the demand for a good or a service by a single consumer at a particular cost and at a specific point in time. Individual demand is driven by desires and quantities that an individual can afford. These demands are influenced by an individual’s age, gender, income, habits, expectations, and cost of competing and related goods in the market.

Determinants of Demands

• Cost of The Commodity:

As per the law of demand, the demand of a commodity increases when the cost of the commodity falls; vice versa, if the cost increases, then the demand of the commodity falls. The cost or price of a commodity decides whether demand would increase, decrease or remain constant. The demand curve or demand schedule can understand the demand quantity at the cost level. The demand for elastic commodities fluctuates with a change in the cost of the commodity. In contrast, the demand for the inelastic commodity is not much affected by the change in the cost of the commodity. 

• Income of the consumer: 

The demand for any commodity can increase with the rise of the consumer’s income. Similarly, if the income of the consumer falls, then the demand for any commodity can decline. There is a linear relationship between the demand for commodities and the income of consumers. The marginal utility determines the proportions of the change in the demand levels. 

• Cost of the related commodity and services:  

1. Complementary commodity – Sometimes, when there is an increase in the cost of one commodity, it can lead to a decrease in the demand for another commodity. Take the example of bread and butter. If there is a rise in the cost of butter, then there is a chance that the demand for bread might fall. This happens because bread and butter are complementary goods.     
2. B. Substitute goods – Sometimes, when there is a rise in the cost of one commodity, it can increase the demand for another commodity. There is an inverse relationship between the cost of one commodity and the demand for another commodity. These commodities can replace each other that is why they are called substitute goods. Tea and coffee are an example of such goods. If coffee’s cost rises, the demand for tea will automatically increase because tea can be a substitute for coffee.  

• Numbers of consumers in the market: The total demand is affected by the number of consumers. As the number of consumers rises, the demand for the commodity also increases.         
• Expectations of Consumers: If a consumer is expecting a fall in income or a decrease in the cost of goods, then the demand for goods might also decrease. Similarly, if the consumer is expecting a rise in income or an increase in the cost of goods, then the demand for goods can also increase.  

Determinants of Supply

The cost of goods and services is a common determinant of supply and demand. The other determinants of supply are cost factors of production, government policy, state of technology, and more. The state of technology can increase or decrease the supply of goods and services. Taxes also affect the cost of production. Other factors that are determinants for supply are foreign policies, the firms’ goals, infrastructural facilities, market structure, natural factors, and more.

Conclusion

Demand is the willingness, desire, and capability to purchase a certain commodity that one needs to fulfil their needs or wants. Determinants of individual demand are the cost of related goods and services, cost of the commodity, income of the consumer, number of consumers in the market, and consumer expectation. The cost of goods and services is a common determinant of demand and supply.